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Monday 25 July 2016

Techno Electric - Powering Ahead


The power sector is transforming with large investments in various govt initiatives. T&D is on focus as well as renewable energy sector. The next few years may see a thrust in this business.


  • India's energy consumption has nearly doubled since 2000

  • Power demand in India is expected to grow from 120 GW to 315-335GW by 2017 - as per McKinsey study.
  • Coal availability will increase with coal mines leases renewed and forest clearances granted. 10 mines are to be added by Mar 2016.
  • The government is expecting an investment of about US$ 250 billion by 2020. Renewables are set to get US$ 100 billion, while the transmission and distribution segment will get US$ 50 billion, each. Another US$ 60-70 billion will be for power generation, including for restarting stalled projects and for new ones while US$ 5-6 billion is set aside for energy efficiency projects. Besides, US$ 20-25 billion investments would come for associated infrastructure required in replacement of old and out-dated equipments, among others.
  • Key focus area is integration of renewable energy to the grid
  • Discoms have an accumulated loss of 3.8 lakh crores and debt of 4.4 lakh crores (as of Mar 2015)
  • UDAY scheme entails the state govts to take over the debt and future losses (in a staggered manner) from the Discoms
  • Government plans to roll out green energy corridor’ project at an estimated cost of INR 43000 cr to facilitate the flow of renewable energy into the National Grid.

  • Renewable power has been declared as a priority sector for bank lending from 2015

  • Leaders in EPC contracting in power sector
  • Spread across entire power sector value chain - generation and T&D
  • Co's forte is 765KV substation projects besides distribution projects

  • 215 cr is the sale proceed for 44.45 MW. 4.83 cr / MW sale price. 162.9MW of wind power capacity remaining.
  • Promoter has 58% stake in the company
  • Mutual funds hold 17.2% and FIIs 5.4%
  • The co is involved with more than 50% of both NTPC and Power Grid's projects; it has relationships with 1500+ vendors
  • One of the first few T&D contractors, who have teamed up with Chinese player Rongxin to participate in STATCOM projects. Have first mover advantage in STATCOM space in India.
  • Govt plans to install 50 STATCOMs in the next 3-5 years with a total spend of 8000 cr.
  • In 2013, the Patran transmission project was completed completely on supplier credit
  • EPC division produces 92% of the revenues
  • Co has a working capital cycle of 35 days vs 66-182 days of competitors
  • The Ministry of Power has planned to provide electricity to 18,500 villages in three years under the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY).
  • A few Ultra Mega Power Projects of about 4,000 MW capacity each are in the offing
  • Power Grid Corporation of India is to build sub transmission system of 220/132kV in 6 North East States at an estimated investment of Rs 15000 cr over a period of 3 years. Already bagged order to the tune of Rs 170 Crores to build 400 kV GIS substation at Assam under World Bank funded NER Power System Improvement Project.
  • Got an order worth Rs 600 cr for substation package at Chittorgarh, Tuticorn, Ajmer and Bikaner associated with Green Energy Corridors: Inter-state Transmission Scheme (ISTS)
  • Order book at end of Mar 2016 is 2,600 cr, 69% of which is from PGCIL
  • Co has a zero penalty record resulting in realization of retention money within 6 months of project completion
  • During 2015-16, around 28,000 ckm (circuit kilometre) of transmission lines were commissioned against 22,000 ckm last year. This is 118% of the annual target set and also the highest ever for a single year.

DISCLOSURE: I currently hold the stock.

Sagar Cement - Cyclical Upturn

Sagar Cement (SC) is likely to be one of the key beneficiaries of the huge development in Andhra and Telengana in the next few years.

Demand Scenario
* Amaravati, is planned over 217 sqkm and would require an investment of 4 lakh crores (ref: www.thehindu.com/opinion/op-ed/telangana-rising-amaravathi/article7271810.ece). Telangana already has over 24,000 cr of infrastructure projects under construction. The govt has cleared lift irrigation projects worth 35,000 cr.
* New high-speed rail line announced between Amaravati and Bengaluru
* New stable governments in TN & Kerala
* Huge investments planned in infrastructure projects like the proposed East Coast Economic Corridor, Dedicated Freight Corridor, Diamond Quadrilateral High Speed Rail and National Waterways.
* Decision to use cement instead of bitumen for a large number of big road projects

 Investment Plan of the Govt related to infrastructure:

Capacity at strategic locations:
3 MTPA of cement and 2.1 MTPA of clinker at Nalgonda, Andhra PradeshAcquired BMM Cements in Sep 2014 with 1 MT cement and 25MW captive power plant at Anantpur, AP at an EV/ton valuation of $87/ton

Sales is well spread geographically, tough majority comes from AP & Telangana.

BMM Cements had 3000 acres of land. In Dec 2015, BMM AP govt approved a 20 year mining lease for 1200 acres containing limestone reserves of 155 million tons. This provides raw material guarantee.
The company has setup rail siding to reduce transport cost. 20% of transport to move to rail thereby increasing operating margins.
The current capacity utilization is at 56% leaving ample scope for increasing utilization. BMM Cements also had a captive power plant of 25MW capacity. Access to captive power will also reduce operating cost. With the completion of the acquisition, SC will consolidate results from Q1FY17.

The stock is available at a market cap of around 1200 cr at a PE of 23. The current replacement cost of cement is about 800 cr/mtpa

* Aggregate demand does not pick up due to delay in infrastructure spending or lack of turnaround in housing sector
* Adverse Govt policy related to price ,specially for low cost housing projects
* Spike in input costs

DISCLOSURE: I hold the stock and other cement stocks.

Monday 16 May 2016

Stock Update: Sintex

Sintex has made an announcement to the exchanges today that reads as follows:

Sintex Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on May 19, 2016, inter alia, to consider various financing options for a fund raising by the Company through the issuance of foreign currency convertible bonds and/or non - convertible debentures in and/or outside India and to form a committee of directors ("2016 Securities Committee") to implement such fund raising, including deciding the mode of issuance and nature of securities to be issued. It is also intended that subject to appropriate market conditions, the 2016 Securities Committee will open the offering of relevant securities and, subject to appropriate demand, decide the terms of the issuance of the securities (including pricing) on May 19, 2016.

Further, the Trading Window of the Company pursuant to SEBI (Prohibition of Insider Trading) Regulations, 2015 read with Code of conduct to regulate, monitor and report trading by insiders of the Company will be closed for trading of Company's equity shares from May 16, 2016 to June 01, 2016.
It basically means that they are planning for FCCBs all over again. It seems that they did not learn the lessons of 2008 well enough.